MORE TO THE POINT.
RAY DALIO.
>> THE WAY IT REALLY WORKS IS
YOU TAKE MONEY AND CREDIT AWAY
FROM IF PEOPLE, RIGHT?
AND SOMETHING ELSE COSTS THEM,
SO THEY SPEND LESS.
AND BECAUSE THEY SPEND LESS,
THEN YOU HAVE LESS INFLATION.
ALL OF THEM HAVE BEEN PAINFUL,
AND WE PRODUCED A WHOLE LOT OF
DEBT.
AND SO NOW EVEN THE FEDERAL
RESERVE IS GOING TO START
SELLING 1.1 TRILLION.
AND THEN YOU HAVE THE TREASURY
SELLING A TRILLION.
AND SO THERE’S A LOT OF SELLING.
AND WHAT THAT DOES IS IT TAKES
PRIVATE CREDIT.
HOW BAD --
NEIL: AT EXPENSE --
[INAUDIBLE CONVERSATIONS]
>> YOU KNOW, THE WAY THE SYSTEM
WORKS REALLY IS WHEN YOU GET A
LITTLE BIT, YOU GET WEAKNESS,
YOU GET A SHOT OF CREDIT, AND
IT’S LIKE A SHOT OF AN UPPER.
SO THAT GIVES YOU BUYING POWER.
AND IT SHOULDN’T BE SURPRISING
THAT WHEN YOU BUY A LOT MORE --
[LAUGHTER]
INFLATION GOES UP.
NEIL: RIGHT.
>> AND THEN --
[INAUDIBLE]
TO THIS DEGREE?
BECAUSE, ACTUALLY, YOU DID.
>> I EXPECTED IT TO GO UP ABOUT
WHERE IT IS.
NEIL: RIGHT.
>> BUT THEN WE ALSO HAD OTHER
THINGS, YOU KNOW?
WE HAD THE UKRAINE AND WE HAD
SOMETHING -- THERE’S NOTHING
PRECISE, BUT I EXPECTED IT,
YEAH, TO GO UP QUITE A LOT.
BECAUSE INFLATION IS DUE TO THE
TOTAL AMOUNT OF MONEY SPENT
DIVIDED BY QUANTITY OF GOODS
SOLD.
NOTHING MORE THAN THAT.
SO WHEN THERE’S -- GIVING BUYING
POWER AND YOU SPEND A LOT, WE’VE
INCREASED THE MONEY SUPPLY BY
ANY OTHER MEASURES, AN ENORMOUS
AMOUNT.
NEIL: YEAH.
CAN WE GET A SOFT LANDING DOING
WHAT WE’RE DOING RIGHT NOW?
MARKETS KIND OF HOPE AGAINST ALL
ODDS THAT WE CAN AND WE AVOID A
RECESSION, BUT WHAT DO YOU
THINK?
>> YOU CAN’T KEEP SPENDING AND
BRING DOWN INFLATION.
SO HERE’S WHAT I THINK, I THINK
THAT WE’RE NOT GOING TO BE ABLE
TO BRING AN INTEREST RATE TO A
HIGH ENOUGH LEVEL TO GIVE A GOOD
REAL RETURN TO HOLDERS OF CREDIT
WITHOUT CAUSING A CONTRACTION IN
ECONOMIC ACTIVITY.
NEIL: WORSE THAN WHAT WE’RE
EXPERIENCING.
>> RIGHT.
YOU ARE AT AN 8% INFLATION RATE.
LOOK AT WHAT PEOPLE GET, AND
WE’RE TALKING NOW ABOUT A 3%
INTEREST RATE AND PEOPLE THINK
THAT THAT’S GOOD.
NEIL: RIGHT.
>> SO YOU’RE GOING TO LOSE
MONEY, LOSE BUYING POWER.
I THINK INFLATION WILL COME DOWN
A BIT, BUT IT’S GOING TO BE VERY
HIGH.
AND MONEY’S GOING TO GET A LOT
TIGHTER.
SO YOU’RE GOING TO HAVE A
STAGFLATION.
NEIL: LIKE WE HAD IN THE ’70s?
WORSE?
>> THESE THINGS -- SIMILAR TO
THE ’70s, BUT NONE OF THEM ARE
ALL THE SAME.
THERE’S ALWAYS A PARADIGM SHIFT.
IT’S LIKE THERE’S A 10-YEAR
PERIOD, AND ALMOST EVERY 10-YEAR
PERIOD IS OPPOSITE OF THE 10
YEARS BEFORE.
NEIL: RIGHT.
>> THE ’70s PRODUCED THE ’80.
NEIL: YEAH, IT WAS NICE TO SEE
THAT.
IT BEARS DOUBT, DOESN’T -- OUT,
DOESN’T IT?
>> WELL, REASON IS AT THE END OF
THAT PERIOD OF TIME, EVERYBODY
BELIEVES THAT THE FUTURE WILL BE
LIKE THE LAST 10 YEARS, AND
EVERYBODY’S POSITIONED THAT WAY.
NEIL: RIGHT.
>> SO WHEN YOU LOOK AT THE
ENVIRONMENT OVER THE LAST 10
YEARS, NOT INFLATION, LOW
INTEREST RATES, AVAILABILITY OF
CREDIT, SO THESE MOVES TAKE
PLACE TYPICALLY OVER A PERIOD OF
10 YEARS AND, LET’S SAY, 2 LEGS.
2 LEGS TO THE MOVE.
SO YOU HAVE A CHANGE IN MINDSET.
PEOPLE THINKING WHAT IS SAFE.
USED TO THINK THAT CASH WAS
SAFE, A SAFE INVESTMENT.
BUT CASH DOESN’T -- CAN IT LOSES
BUYING POWER TO INFLATION.
SO NOW AS PEOPLE REALIZE THAT
THAT LOSES BUYING POWER AND AS
THE FED HAS TO DEAL WITH THE
TIGHTENING OF MONETARY POLICY,
YOU GET THE PARIS LEG.
AND THAT -- THE FIRST LEG.
AND THAT’S THE FIRST LEG THAT
WE’RE IN.
AND WHEN THAT RUNS ITS COURSE,
WHICH IT PROBABLY WOULD RUN ITS
COURSE I WOULD SAY IN THE NEXT
18 MONTHS OR SO, THEN YOU
HAVE --
NEIL: 18 MORE MONTHS OF
TIGHTENING?
>> YES.
18 MORE MONTHS OF -- AND, BY THE
WAY, THERE’S NOTHING PRECISE,
AND I’M NOT SURE THAT I’M RIGHT
IN THIS.
BUT I’M JUST SAYING, I’M GIVING
YOU WHAT I THINK, RIGHT?
THAT IF YOU TAKE THE CYCLE, YOU
HAVE TO RAISE INTEREST RATES
HIGH ENOUGH THAT IT PRODUCES AN
ADEQUATE RETURN, OTHERWISE THE
SELLERS, HEIR GOING TO SELL
THEIR INSTRUMENTS -- THEY’RE
GOING TO SELL THEIR INSTRUMENTS.
AND IF WE LOOK AT THE
SUPPLY-DEMAND FOR CREDIT, THE
FEDERAL RESERVE’S GOING TO SELL
1.1 TRILLION, YOU HAVE THE
GOVERNMENT SELL A TRILLION AND
YOU HAVE OTHERS SELLING BECAUSE
IT DOESN’T PROVIDE A GOOD
RETURN.
THAT CREATES A CERTAIN TIGHTNESS
OF MONEY.
THAT CREATES A FALL IN THE
CONTRACTION, YOU HAVE A
CONTRACTION IN SPENDING POWER,
CREDIT.
AND SO THAT’S WHAT’S LIKELY
AHEAD.
SO YOU HAVE THE FIRST LEG OF THE
MOVE.
LIKE ALL CLASSIC --
NEIL: THIS IS JUST THE FIRST
LEG.
>> WELL, THE BIG -- YEAH.
THESE THINGS TAKE PLACE UNTIL
THE OPPOSITE IS TRUE, UNTIL
PEOPLE BELIEVE THAT CASH WON’T
BE A GOOD INVESTMENT, UNTIL
THERE’S INFLATION.
SO I THINK THAT YOU HAVE THE
LEG.
LIKE 197 1 INTO ’7 # AND THEN
’3, TIGHTNESS IN MONEY POLICY
CAUSES 1974, ’5, BAD RECESSION,
BAD MARKET, EASING OF MONOTARIAN
POLICY.
HEN -- MONETARY POLICY.
THEN YOU GET ANOTHER LEG UP,
’76, ’77.
THEN YOU HAVE THE HIGHER LEVEL
OF INFLATION, THE TIGHT MONEY
POLICY.
AND AT THAT POINT EVERYBODY
BELIEVES THAT I NEVER WANT TO
OWN A BOND, I NEVER WANT -- I
ONLY WANT INFLATION HEDGE ASSETS
BECAUSE THAT’S HOW THEY’RE
POSITIONED, AND THEN THE
OPPOSITE HAPPENS IN THE ’80s.
SO IT’S THAT KIND OF A
SITUATION.
AND THAT’S HAPPENING IN A
POLITICAL ENVIRONMENT.
BECAUSE WE’RE TALKING ABOUT
MARKETS, BUT WE CAN’T SEPARATE
MARKETS FROM POLITICS.
AND IS WE CAN’T -- WE CAN’T
SEPARATE POLITICS INTERNALLY
FROM EXTERNAL POLITICS.
SO WE ALSO HAVE POLITICAL
SITUATION THIS TERMS OF THE LEFT
AND THE RIGHT AND THE EXTREMITY
OF THAT AND WHAT THAT MIGHT MEAN
IN TERMS OF POLICY.
NEIL: SO IT MATTERS WHO’S IN
CHARGE IN THAT ENVIRONMENT.
>> OF COURSE IT MATTERS WHO’S IN
CHARGE.
THERE’S THE FIGHT OVER WEALTH
AND POWER, AND IT’S AN
IRRECONCILABLE DIFFERENCE
POLITICALLY.
YOU KNOW, WE HAVE POPULISM, AND
POPULISM -- A POPULIST IS A
PERSON WHO WILL FIGHT FOR THAT
ONE SIDE AND WON’T LOSE.
THEY WON’T COMPROMISE --
NEIL: DONALD TRUMP.
>> DONALD TRUMP OR IT COULD BE
THE OPPOSITE.
BUT THE ABILITY --
NEIL: I DON’T THINK JOE BIDEN’S
A POPULIST.
>> NO, BUT I THINK THERE ARE
ALSO POPULISTS ON THE LEFT --
NEIL: GOT IT.
>> -- AND THERE ARE POPULISTS OF
THE RIGHT.
AND NEITHER OF THEM MAY HAVE
IRRECONCILABLE DIFFERENCES, AND
THEY WON’T LOSE.
NEIL: THAT THAT’S WHY THEY DON’T
GET ANYTHING DONE.
>> THAT’S WHY QUESTION IS IN THE
NEXT ELECTION, WILL EITHER SIDE
ACCEPT LOSING?
THINK ABOUT US AMERICANS ASKING,
WILL BOTH SIDES ACCEPT LOSING?
WILL WE RESPECT THE SYSTEM?
SO IT MAKES AN INEFFICIENCY IN
THE ECONOMY.
THEN WE TAKE OTHER HINGES, NOT
JUST THE -- THINGS, NOT JUST THE
PRINTING OF MONEY, BUT WE’RE
SPENDING WITHOUT A LIMITATION.
YOU KNOW, NORMALLY IF THERE WAS
NOT A FIAT MONETARY SYSTEM OR
YOU AS AN INDIVIDUAL, YOU ASK
HOW MUCH MONEY DO YOU HAVE TO
SPEND.
BUT NOW WE THINK WE HAVE
SPENDING ON DEFENSE, SPENDING ON
REBUILDING THE UKRAINE, SPENDING
ON THIS PROGRAM, SPENDING ON
THAT PROGRAM.
THERE’S NOT A LIMITATION.
THESE THINGS ARE CONNECTED.
SO, YES, LEADERSHIP AND THE
EFFICIENCIES MATTER IN TERMS OF
THE ECONOMY, AND THEY MATTER IN
TERMS OF LIFESTYLE BECAUSE WE
HAVE THESE INTERNAL CONFLICTS
AND EXTERNAL CONFLICTS IN WHICH
THERE’S WORRIES ABOUT
SELF-SUFFICIENCY IN CASE OF A
WAR.
IN ORDERS, WE THINK ABOUT TRADE.
ALL OF THOSE ENTER INTO THE
PICTURE.
SO YOU HAVE A DYNAMIC THAT IS
VERY SIMILAR REALLY TO THE
1930s DYNAMIC OR EVEN --
NEIL: WELL, THE 1930s DYNAMIC,
A LOT OF PEOPLE ARE SAYING NOW
WE HAVE TO TO GET READY FOR
CHINA.
YOU THINK COOLER HEADS AND HOPE,
YOU TALK ABOUT COOLER HEADS
POSSIBLY PREVAILING.
YOU TALK ABOUT THE TAIWAN ISSUE,
AND YOU SAY THAT TAIWAN IS A ONE
OF A KIND INTEREST THAT CHINA
COULD WOULD FIGHT FOR BECAUSE OF
ITS BELIEF THAT THERE IS BUT ONE
CHINA, AND TAIWAN IS PART OF
CHINA.
IT’S DOUBTFUL, YOU SAY, THAT THE
U.S. WOULD CONSIDER IT WORTH A
MAJOR FIGHT TO DEFEND, THOUGH IT
MIGHT.
THIS SEEMS TO ME TO BE ONLY
POSSIBLE TRIGGER FOR A MILITARY
WAR BETWEEN THE TWO GREATEST
POWERS IN THE NEXT TEN YEARS.
YOU HAD TO DO AN UNDER AND OVER ON THAT, WHAT WOULD YOU SAY?
ON THAT, WHAT WOULD YOU SAY?
>> WELL, I WOULD SAY 30% OF A
MILITARY CONFLICT.
I THINK BOTH SIDES RECOGNIZE HOW
TERRIBLE A MILITARY CONFLICT
WOULD BE.
BUT YOU COULD TAKE SOMETHING
LIKE NANCY PELOSI’S TRIP --
NEIL: RIGHT.
I WAS JUST THINKING ABOUT THAT.
>> OKAY.
NEIL: COULD THAT TRIGGER IT?
>> THE FACT THAT WE’RE SIMPLY
TALKING ABOUT IT, THAT WE’RE SO
CLOSE TO THE EDGE, IT’S NOT THE
OLD DAYS.
THE OLD DAYS --
NEIL: THAT DOESN’T TAKE MUCH,
RIGHT?
>> THE UNITED STATES USED TO BE
A DOMINANT MILITARY POWER.
THINK ABOUT IT, THE NEW WORLD
ORDER BEGAN IN 1945.
THE UNITED STATES WON THE WAR.
WE HAD 80% OF THE WORLD’S MONEY.
GOLD WAS MONEY THEN.
WE WERE HALF THE WORLD’S GDP AND
HAD MILITARY POWER, SO NOBODY
WANTED TO FIGHT.
IF YOU LOOK AT THE HISTORY OF
THESE THINGS OVER A PERIOD OF
TIME, WHEN YOU HAVE THEN
COMPARABLE POWERS AND THERE’S
DISAGREEMENTS, IT CAN BE
RESOLVED QUITE OFTEN BY A
CONFLICT.
AND SO THAT’S THE NATURE.
WE’RE NO LONGER THE DOMINANT
POWER.
SO IT BECOMES CLOSER.
SO NOW WHEN WE DEAL WITH EXIST
TEN, ISSUES FOR DIFFERENT
PARTIES, THERE IS A RISK OF
THESE THINGS.
NEIL: IT’S SUPPOSEDLY IN BOTH
OUR ECONOMIC INTERESTS TO AVOID
THAT.
>> OF COURSE.
NEIL: THINGS ARE ALWAYS
AVOIDABLE --
>> IN CHINA BECAME RUSSIA, THINK
ABOUT THE ECONOMIC CONSEQUENCES
OF HOW WE’RE INTERTWINED.
22% OF AMERICAN MANUFACTURED
GOODS, IMPORTS COME FROM CHINA.
SO JUST IMAGINE IF CHINA BECAME
LIKE RUSSIA.
IN OTHER WORDS, YOU SAY I DON’T
WANT TO TAKE IMPORTS, SO PEOPLE
DON’T BUY THEIR NIKES, THEIR
APPLES, THEY DON’T BUY THINGS
THAT ARE PRODUCED IN CHINA AND
SO ON.
DO YOU KNOW WHAT THAT WOULD MEAN
ECONOMICALLY FOR US IN TERMS OF
THE INFLATION RATE AND THE
CONSEQUENCES?
NEIL: THE ARGUMENT WOULD BE IT
HURTS CHINA MORE, YOU SAY, BUT
YOU SAY MUTUAL DESTRUCTION,
RIGHT?
>> WHO CARES IF IT HURTS CHINA
MORE?
NEIL: YEAH.
>> IS THAT A WIN, WHEN IT HURTS
YOU TERRIBLY?
NEIL: YEAH.
>> OKAY, SO BOTH SIDES -- WHEN
YOU HAVE A WAR, BOTH SIDES LOSE.
I’M NOT, I’M JUST TRYING TO BE
PRACTICAL HERE.
WHEN IF WE’RE LOOKING AT THIS,
YOU ASKED THE QUESTION WHERE ARE
WE.
WE ARE AT A RISKY POSITION,
RIGHT?
WE UNDERSTAND THIS.
WHAT WOULD THE CONSEQUENCES BE?
I’M DESCRIBING THE CONSEQUENCES.
MEMBER NISTICALLY.
I’M NOT IDEOLOGICAL, I’M A
PRACTICAL GUY --
NEIL: WHAT I LOVE ABOUT BOOK,
YOU GO THROUGH HISTORY WHERE
POWERS COME AND GO, AMONG
OTHERS, CHINA, ENGLAND, SPAIN,
RUSSIA.
BUT IT ALL GOES IN WAVES.
WHERE ARE WE IN THIS WAVE RIGHT
NOW?
>> WELL, THERE’S AN ARC --
NEIL: YEAH.
>> THE WAY IT WORKS IS THERE’S A
NEW ORDER.
AND A NEW ORDER COMES OUT OF A
CONFLICT, AND ONE SIDE WINS.
THE LAST WORLD ORDER BEGAN IN
1945.
THERE’S ONE -- THEN THERE’S THE
DOMINANT POWER ECONOMICALLY AND
ON.
AND HEN AS THEY BECOME THE
DOMINANT POWER, YOU HAVE A
PERIOD OF PEACE AND PROSPERITY
BECAUSE NOBODY WANTS TO FIGHT
IT, PEOPLE WORK TOGETHER.
IT’S A GREAT EQUALIZER ALSO.
WEALTH GAPS ARE LESS, PEOPLE
COME BACK AND THEY PRODUCE THAT
GENERATION.
THEN WHAT HAPPENS OVER A PERIOD
OF TIME IS THINGS GET BETTER,
YOU CHANGE THE GENERATIONS,
YOU’VE CHANGED THE APPROACHES,
AND THEN YOU BUILD UP LARGER
WEALTH GAPS, LARGER, YOU KNOW,
WEALTH IS SOMETHING IN OUR
SYSTEM THAT IS NOT DISTRIBUTED
EQUALLY OR YOU BUILD UP
RESENTMENTS --
NEIL: ARE WE AT THAT PRESSURE
POINT MANY.